DBSI TIC Fraud Defendants Convicted

DBSI was one of the largest tenant-in-common frauds since the IRS began allowing these investments in 2002. Although the tenant-in-common form of property ownership is fundamentally sound in certain circumstances, fraudsters and Ponzi schemers quickly moved in to the arena and gave the industry a horrible name. One such example is DBSI. According to a federal criminal indictment, the company defrauded investors of tens of millions of dollars.

This week a jury convicted four principals of DBSI of a multitude of charges.

After a 10 week trial, prosecutors convinced jurors to return guilty verdicts over against Mark Ellison, Douglas Swenson, David Swenson and Jeremy Swenson on charges of wire and securities fraud. Douglas Swenson is the father of David and Jeremy.

During its heyday, DBSI employed 500 people and managed real estate in 30 sates. The company claimed it had a net worth of over $100 million. Prosecutors say that these claims were fictitious. They say that the company’s officer knew that the company was operating in the red and was diverting investor monies.

Tenant in common (or TIC) investor rules allow individual taxpayers to defer profits from the sale of real estate by engaging in a “like kind” exchange of property. A 2002 IRS ruling allowed up to 35 taxpayers to pool their profits together and purchase large real estate projects such as office buildings and shopping centers.

As a promoter of TIC investments, DBSI promised it would manage these projects and that investors would receive 7% rates of return.

DBSI’s officers were indicted after the company collapsed costing investors millions of dollars. TIC frauds are worse than virtually any other type of investment scheme because investors stand to lose more than their investment. In a typical stock fraud case, investors losses are typically limited to their initial investment. For example, buy $1000 of a worthless stock and you lose $1000. Because TIC investments typically were funded in part by mortgage monies, the tenants in common (TIC) are often on the hook for a mortgage.

We have represented dozens of investors who were defrauded by Carlton Cabot in a similar TIC fraud case. In many of those cases, lenders are seeking millions of dollars from the TICs even though their investment was wiped out.

Instead of a “safe” investment to supplement their retirement, some of the TIC investors are facing the prospect of losing all of their life savings and having no money for retirement.

We were happy to see the conviction of the four DBSI defendants. Almost as guilty, however, are the stockbrokers who shamelessly sold these scams to investors. Instead of doing due diligence on the promoters like DBSI and Carlton Cabot, they were blinded by greed. Unknown to most investors were the high commissions being offered to stockbrokers who sold these investments.

Half of the brokerage firms that sold DBSI were wiped out and closed their doors when DBSI imploded. That was terrible news for investors who then had no prospect of recovery.

The TIC scandals of the last several years are becoming old news. That is because using TICs as an investment vehicle has all but disappeared.

If you purchased a fraudulent tenant in common project through a stockbroker or other professional, you may have a claim against both the broker and his or her employer. Stockbrokers have a duty to conduct due diligence on the investments they recommend and to only recommend investments that are suitable to each client’s particular needs.

No sentencing date has been set yet for the DBSI executives. They face decades in prison, however.

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If you lost money in a TIC fraud or other investment scheme we may be able to help get back your hard earned money. Time is limited on many of these projects, however. For more information contact attorney Brian Mahany at *protected email* or by telephone at (414) 704-6731 (direct).